The Democrats have decided to run in 2012 as the bailout party. It is an odd choice — the 2008–09 bailouts were deeply unpopular among the general public, and even their backers were notably conflicted about the precedent being set and the ensuing moral hazard. But Democrats have nonetheless made one of the most abusive episodes in the entire bailout era their economic cornerstone: the government takeover of General Motors.

The GM bailout was always an odd duck: The Troubled Asset Relief Program (TARP) was created in order to preserve liquidity in the financial markets by heading off the collapse of key financial institutions that had made catastrophically bad bets on real-estate securities — nothing at all to do with cars, really. GM’s financial arm, today known as Ally Financial, was in trouble, but GM’s fundamental problem was that its products were not profitable enough to support its work-force expenses. A single dominant factor — the United Auto Workers union’s extortionate contracts with GM — prevented the carmaker from either reducing its work-force costs or making its products more efficiently. And its hidebound management didn’t help.

Admirers of the GM bailout should bear in mind that it was the Bush administration that first decided to intervene at the firm, offering a bridge loan on the condition that it draw up a deeply revised business plan. President Obama’s unique contribution was effectively to nationalize the company, seeing to it that the federal government violated normal bankruptcy processes and legal precedent to protect the defective element at the heart of GM’s troubles: the financial interests of the UAW. It did this by strong-arming GM’s bondholders into taking haircuts in order to sweeten the pot for the UAW. The Obama administration also creatively construed tax law to relieve GM of tens of billions of dollars in obligations — at the same time that Barack Obama & Co. were caterwauling about the supposed lack of patriotism of firms that used legal means rather than political favoritism to reduce their tax bills.

Mitt Romney’s proposal for a structured bankruptcy would have necessitated considerable federal involvement, too, but with a key difference: The UAW contracts would have been renegotiated, and GM’s executive suites would have been cleaned out, placing the company on a path toward innovation and self-sufficiency rather than permanent life support. Which is to say, Obama did for GM what he is doing by un-reforming welfare: creating a dependent constituency.

The Democrats cling to the ridiculous claim that the bailout of GM and its now-Italian competitor, Chrysler, saved 1.5 million U.S. jobs. This preposterous figure is based on the assumption that if GM and Chrysler had gone into normal bankruptcy proceedings, the entire enterprise of automobile manufacturing in the United States would have collapsed — not only at GM and Chrysler but at Ford and foreign transplants such as Toyota and Honda. Not only that, the Democrats’ argument goes, but practically every parts maker, supplier, warehousing agency, and services firm dedicated to the car industry would have collapsed, too. In fact, it is unlikely that even GM or Chrysler would have stopped production during bankruptcy: The assembly lines would have continued rolling, interest and debt payments would have been cut, and — here’s the problem — union contracts would have been renegotiated. Far from having saved 1.5 million jobs, it is not clear that the GM bailout saved any — only that it preserved the UAW’s unsustainable arrangement.

Bill Clinton bizarrely tried to claim that the bailout has been responsible for the addition of 250,000 jobs to the automobile industry since the nadir of the financial crisis. Auto manufacturers and dealerships have indeed added about 236,000 jobs since then, but almost none are at GM, which has added only about 4,500 workers, a number not even close to offsetting the 63,000 workers that its dealerships had to let go when the terms of the bailout unilaterally shut them down.

Ugly as the bank bailouts were, the federal government appears set to make its money back on most of them, with the exception of some smaller regional banks and CIT. Even AIG, one of the worst of the financial basket cases, is set to end up being a break-even proposition for U.S. taxpayers. But tens of billions of dollars will be lost on GM. The federal government put up more for a 60 percent interest in the firm than GM is worth today.

At their convention, Democrats swore that GM is “thriving,” but the market doesn’t think so: GM shares have lost half their value since January 2011. And while the passing of the Great Recession has meant growing sales for all automakers, GM is seriously lagging behind its competitors: Its sales are up 10 percent, a fraction of the increases at Kia, Toyota, Volkswagen, and Porsche. With its sales weak, its share price crashing, and its business model still a mess, some analysts already are predicting that GM will return to bankruptcy — but not until after the election.

The Obama administration talks up all of the “jobs” it saved at GM — but jobs doing what? Manufacturing automobiles that are not competitive without a massive government subsidy? Propping up an economically unviable enterprise just long enough to get Barack Obama reelected? As much as it will pain the hardworking men and women of GM to hear it, it is not worthwhile to save jobs at enterprises that cannot compete on their own merits. So long as the federal government is massively subsidizing the operation, a job at GM is a welfare program with a fairly robust work requirement. (And we all know how the Obama administration feels about work requirements.)

We have bankruptcy laws and bankruptcy courts for a reason. It may make sense to expedite the proceedings for very large firms such as GM in order to prevent disruptions in the supply chain that would, as Ford’s executives argued, harm other, healthier firms. But bankrupt is what GM was, and bankrupt is what GM is, a fact that will become blisteringly apparent should the government ever attempt to sell off the shares it owns in the company.

The GM bailout was a bad deal for GM’s creditors, for U.S. taxpayers, and, in the long run, for the U.S. automobile industry and our overall national competitiveness. No wonder the Democrats are campaigning on a fictionalized account of it.

let us hope GM does not go under. I enjoy the GMC Truck brand too much.

Allen,

I have owned a 2001 Chevy Silverado P/U, and a 1990 S-10 P/U. I can't say they were the best trucks I have ever owned but, the Silverado did have a nice smooth ride to it. Although the engines were solid, it seems the interior falls apart way too quickly.

I have to agree with Lamont on this one, I cannot bring myself to own another GM product again due to their taxpayer bailout. And I can guarantee you that they will need another bailout in the next 5 years. The C.A.F.E. standards Obama has placed on them will most assuredly be the death knell for them.

Now GM wants the government to get out of of their business. GM claims it is hurting their image. Too late. GM took the money and made a deal with the devil. Let them go under. I don't give a shit.

Man! I had no clue that there were so many automobile companies that went belly-up in the past Thanks for the link.

Rather than Obama throwing taxpayer money to GM, The bankruptsy process would have been the saving grace for GM. The bankruptsy law would have allowed GM to restructure, re-negotiate contracts, and they would have become stronger than ever before. Just like the Airline industry did in the 80's. but that would be the free-market approach which Obama despises.

Truth is, Obama doesn't give a damn about any business, industry, or corporation. His record setting regulations prove that. His EPA has become a monstrocity full of bureaucrats with police powers that would rival the ex-Soviet Union. Just ask the coal industry, fisheries, oil industry, or the hydroelectric power industry.

Now, I would challenge anyone on the forum to deny that the bailout was to "save the auto industry." This was a payback to the Unions, plain and simple.

I too, will never buy another GM product.

Think about this: What if Obama would have been president when the automobile was invented and steadily began replacing the horse and buggy. Obama would have tried to 'bailout' the faltering horse and buggy, and who knows, we all still may be traveling by horse and buggy today because they would have been "too big to fail.".

Hi there! Thanks for posting. By the way, let me share a little data regarding to the topic. It was reported recently that after all was said and done, the bailouts done by the federal government were likely to turn a profit. That has just been confirmed, as part of the last of the government's stake in AIG was recently sold making for almost $18 billion in profit from the AIG bailout.